PAR TECHNOLOGY CORP quarterly report, Q1 FY2023

PAR Technology Corporation — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023; unaudited. PAR operates Restaurant/Retail technology and Government contracting businesses.

Metric	Q1 2023	Q1 2022
Revenue	$100.4 million	$80.3 million
Gross profit / margin	$23.2 million / 23.1%	$20.6 million / 25.7%
Operating loss	$13.9 million	$12.8 million
Net loss	$15.9 million; $0.58 per share	$15.7 million; $0.58 per share
Adjusted EBITDA (non-GAAP)	$(8.8) million	$(2.9) million
Cash used in operating activities	$16.7 million	$21.2 million

Revenue grew 25.1%. Subscription service revenue rose 31.4% to $28.0 million; Government contract revenue increased 48.6% to $31.9 million, largely from continued counter-small UAS task orders.
Restaurant/Retail revenue increased 16.5% to $68.6 million; segment operating loss narrowed to $2.7 million from $5.2 million. Government revenue was $31.9 million and segment operating income was $2.3 million, versus $1.5 million.
Gross margin declined 2.6 percentage points. Hardware margin fell to 16.4% from 20.2%, attributed to an inventory charge; professional services margin fell to 17.9% from 26.5%. Subscription service margin was essentially flat at 50.2%; adjusted subscription service margin was 71% versus 74%.
SG&A rose 22.8% to $27.5 million and R&D rose 32.0% to $14.3 million, reflecting higher personnel and technology costs, including a full quarter of MENU expenses.
ARR, a company-defined operating metric, increased 22.7% to $115.9 million. Active sites grew across Guest Engagement (15.7%), Operator Solutions (21.6%), and Back Office (18.1%).

At March 31, cash and cash equivalents were $48.7 million and short-term investments were $40.8 million. An additional $7.4 million was held on behalf of customers and is not presented as company cash available for general use.
Operating cash use improved to $16.7 million from $21.2 million, but the quarter ended with $56.1 million of cash and customer-held cash combined, down $21.5 million from year-end. Working-capital uses included higher receivables and annual bonus payments.
Long-term debt carrying value was $389.7 million, representing $398.8 million principal in fixed-rate convertible notes: $13.8 million due 2024, $120.0 million due 2026, and $265.0 million due 2027. Q1 net interest expense was $1.7 million.
Management expects available cash and cash equivalents to meet operating needs for at least 12 months. It identified $34.0 million of contractual obligations over the next 12 months, including $24.5 million of operating purchase commitments, $8.0 million of interest, and $1.5 million of leases.

A $5.2 million noncash reduction in the MENU acquisition earn-out liability was recorded as an operating expense credit, reducing the reported loss. The liability fell from $9.8 million at year-end to $4.6 million. The earn-out valuation uses significant unobservable inputs.
Adjusted EBITDA deteriorated despite revenue growth, reflecting underlying operating costs and performance; the contingent-consideration credit should be considered when assessing reported results.
No specific revenue or earnings forecast was provided. Management cited ongoing investment in product development and growth, and said additional financing may be sought; availability on acceptable terms is not assured.
Risks highlighted include macroeconomic weakness, inflation and interest rates, customer spending, supply and logistics disruptions, hiring and retention, cybersecurity, international and currency exposure, and execution of acquisitions and product strategy. Government contract costs are subject to audit; management said current legal proceedings were not expected to have a material adverse effect, or could not be estimated.
After quarter-end, CEO Savneet Singh entered into an amended employment letter effective May 9, 2023, including a $620,000 base salary, performance-based incentive eligibility, and equity awards.

Whether subscription growth and ARR translate into improved GAAP margins and operating cash generation.
The causes and persistence of hardware and professional-services margin declines, including inventory-related charges.
Government contract execution, funding and revenue concentration: the DoD represented 32% of total revenue, while $324.5 million of Government contract value remained, of which $86.2 million was funded.
Cash runway and refinancing or repayment plans for the 2024, 2026 and 2027 notes, alongside stated operating commitments.
The assumptions and future earnings or cash-flow effects of the MENU earn-out valuation and other acquisition-related estimates.